New law on administrative cooperation in the field of taxation

The Law of 16 May 2023 ("Law") has strengthened the administrative cooperation in the field of taxation (i) introducing new reporting obligations on digital platform operators, (ii) clarifying and improving existing rules.

Digital platform operators

The Law implements DAC7¹ , short for the 7^th version of the European Council Directive on administrative cooperation in the field of taxation²  requiring digital platform operators (such as websites and mobile apps) to collect and report information to the Luxembourg tax authorities ("LTA") on the income of sellers offering certain services on their platform.

The LTA will then automatically exchange this information with the tax authorities of the seller's Member State(s).

Below is a summary of the main features of the Law.

• Who are the digital platform operators in the scope of the Law?

1. (i) The "reporting platform operator", i.e. any platform operator based in Luxembourg (e.g. tax resident or with a permanent establishment in Luxembourg) or any platform operator with no such connection to Luxembourg or another Member State, located in jurisdictions that do not automatically exchange information with EU Member States, but that facilitate (a) the rental of real estate located in a Member State or (b) the provision of personal services or the sale of goods or the rental of any means of transport by reportable sellers.
2. (ii)The "excluded platform operator", i.e. platform operators that can demonstrate they have no "reportable sellers" (see below).

• Who are the sellers whose information is reported?

Information must be reported on the "reportable sellers", i.e. any "active seller" other than an "excluded seller" (e.g. listed entities or Governmental Entity) that is either resident in Luxembourg or in another EU Member State, or that rented out immovable property located in Luxembourg or in another Member State.

An "active seller" is a seller that either provides or has paid or credited consideration in connection with a "relevant activity" (i.e. sale of goods, personal services, immovable property or means of transport rental).

• What are the obligations of the Reporting Platform Operators under the Law?

1. (i) Registration: The Reporting Platform Operator and the Excluded Platform Operator must register with the LTA by 31 December 2023 (or for any activity starting after that date at the time they start their activity). They must provide certain information upon the registration (e.g. their name and tax identification number (TIN)) and notify the LTA of any change in the information provided within 1 month from the change. It is worth noting that a Reporting Platform Operator can choose to register with another Member State. Failure to register within the time limit may trigger a fixed fine of EUR 5.000.
2. (ii) Collecting information: The Reporting Platform Operator must collect certain information (e.g. name, TIN, VAT number, permanent establishment through which relevant activities are carried out in the EU, etc.) in respect of each Reportable Seller on their platform. If the Reportable Seller does not provide the requested information, the Reporting Platform Operator can, depending on the case, either close the Reportable Seller's user account after the expiration of the 60-day limit and block its re-registration or withhold payments for as long as the Reportable Seller has not disclosed the requested information.
3. (iii)Determining the EU Member State(s) of residence: Based on this information, the Reporting Platform Operator must determine the Seller's Member State(s) of residence based on the rules set forth in the Law.
4. (iv) Due diligence process: The Reporting Platform Operator must verify if the information collected on the sellers is reliable by using all information and documents available in their records or on publicly accessible websites. The Reporting Platform Operator will need to complete their due diligence procedures by 31 December 2023 for the first time after DAC7 enters into force and by 31 December of the second reportable period for sellers already registered on the platform as of 1 January 2023 or as of the date at which an entity becomes a Reporting Platform Operator. The due diligence may be outsourced to third party service providers but will nonetheless remain the responsibility of the Reporting Platform Operator.
5. (v) Reporting obligation: Reporting information includes inter alia the Reportable Seller's identity (name and address), the consideration received/credited and tax/financial account identification details. In case of immovable property rental services, the address of the rented property must also be provided. The Reporting Platform Operator must report on an annual basis and no later than 31 January of the year following the calendar year where the Reportable Seller is identified. Failure to report within this time limit or reporting incomplete or inaccurate information may trigger a fixed fine of EUR 5.000.
6. (vi) Records: Reporting Platform Operators must keep records of the steps undertaken and any information used to perform their due diligence procedures and reporting requirements for a 10-year period following the end of their related reportable period.

Data protection

The Law also includes data protection requirements to comply with the General Data Protection Regulation ("GDPR").

First, digital platform operators which are required by the Law to collect and report information to the Luxembourg tax authorities on the income of sellers offering certain services on their platform (see related section above) must  (i) inform each individual concerned that the information will be collected and reported in accordance with the Law and (ii) provide each of them with all information they are entitled to from the data controller within a timeframe that will allow them to exercise their data protection rights and, in any case, before the information is reported.

Furthermore, the Law has amended existing laws on administrative cooperation to include the same data protection requirements i.e. the Law of 18 December 2015 on Common Reporting Standard, the Law of 23 December 2016 on Country-by-Country Reporting and the amended Law of 25 March 2020 on Reportable Cross-Border Arrangements.

Joint audits

The Law also strengthens the administrative cooperation through the improvement of existing rules relating to the presence of officials of a Member State during an inquiry in another Member State, simultaneous control and joint audits. In particular, the Law provides for a clear framework for conducting joint audits between two or more Member States.

Conditions for the exchange of information upon request clarified

The Law also implements the provisions of DAC7 that provide for an improved definition of "foreseeable relevance" whereby the requested information will be considered as foreseeably relevant if "at the time the request is made, the requesting authority considers that, in accordance with its national law, there is a reasonable possibility that the requested information be relevant to the tax affairs of one or several taxpayers. It should be identified by name or otherwise, and be justified for the purposes of the investigation". The Law also includes rules for the requesting tax authorities to comply with, regarding how to correctly proceed whenever they need the information of a group of taxpayers in order not to fall into fishing expeditions.